Accounting Policy Changes
Introduction
Accounting policies refer to the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. Wherever there is a need for choice among alternative accounting methods, the term is usually used to refer to the conventions adopted in the preparation and presentation of financial statements prepared in accordance with accepted accounting practices. These policies may be changed over time as an entitys activities evolve and the environment in which it operates changes.
Scope Statement
The purpose of this document is to provide an overview of accounting policy changes and the processes that may be necessary to implement them. It is intended to outline the general principles, considerations, and procedures which should be taken into account by entities in reviewing and changing their accounting policies.
Overview
It may become necessary over time to change or update accounting policies in relation to a particular activity or activity type. In these cases, it is important to make the appropriate changes to financial statements in order to ensure accuracy, transparency, and comparability with the results of other entities.
Accounting policy changes can be of two types: voluntary changes and involuntary changes. Voluntary changes occur when an entity voluntarily decides to make changes to its accounting policies. Involuntary changes occur when an entity is required to make changes to its accounting policies due to changes in legislation, accounting regulations, or other external factors.
Depending on the extent of the changes and the nature of the activity, different methods may be used to update an entitys accounting policies. These methods include amending existing policies, replacing existing policies, or introducing new policies altogether.
Voluntary Accounting Policy Changes
Where an entity voluntarily decides to make changes to its accounting policies, it should first consider the best approach. Depending on the extent of the proposed change and the nature of the activity, different methods may be used to update the accounting policies. These methods include amending existing policies, replacing existing policies, or introducing new policies altogether.
When making voluntary accounting policy changes, entities should pay careful consideration to the impact it will have on their financial statements. This includes ensuring that the changes are consistent with existing principles, as well as ensuring they are consistent with the financial reporting framework in place.
Involuntary Accounting Policy Changes
Involuntary accounting policy changes are changes that are made due to changes in legislation, accounting regulations, or other external factors. Where an involuntary change is necessary, entities should pay careful consideration to the impact the change may have on the financial statements.
When making accounting policy changes due to changes in legislation or other external factors, entities should ensure that the changes are consistent with existing principles and the financial reporting framework in place.
Conclusion
Accounting policy changes can be of two types: voluntary changes and involuntary changes. When making changes to an entitys accounting policies, it is important to pay careful consideration to the potential impact they may have on the financial statements, as well as ensuring they are consistent with existing principles, as well as the financial reporting framework in place.
